Making the market a force for good

Many companies already understand the important role they play in supporting the wellbeing of communities, but what can be done to ensure social responsibility becomes a key part of corporate strategy?

Positive social impact can be measured in many ways, from lives being saved to more children attending school. Photograph: Graeme Robertson

When women in Haiti added fruit flavouring to purified water and sold it to their peers, an impromptu community business was born. While the main aim was a health-related one – the women used purifying sachets distributed after the 2010 earthquake to clean the water – the unforeseen knock-on effect involved women educating their peers about not drinking contaminated water and running their own mini-enterprise.

This example of social impact, from Procter & Gamble, the multinational consumer goods company that produces the water-purifying packets, was among those discussed at a recent roundtable debate hosted by the Guardian. The event, held in association with international mining company Anglo American, explored how far companies go beyond traditional philanthropy, and looked specifically at ways to factor social responsibility into corporate strategy. For example, while the Guidelines for Multinational Enterprises, which were drawn up by the Organisation for Economic Co-operation and Development (OECD), provide voluntary recommendations for businesses to comply with wherever they operate, the roundtable discussed how firms might go the extra mile to make positive social impact par for the course.

As the economic climate is making already marginalised communities more vulnerable, the roundtable heard that there is an even greater need for businesses to create positive social change. "There's a storm blowing in Europe," explained John Morrison, executive director of thinktank the Institute for Human Rights and Business (IHRB), adding, "what's going to be a fundamentally bad time for Europe in the next few years will also be an opportunity for a rethink [on this agenda]."

Participants began by defining social impact; there was widespread consensus that it was a broad term including community, social, environmental and human rights impact. Many felt that human rights, in particular, are a lens through which communities judge business. Furthermore, the communications revolution has made people more aware of their rights, so companies must be transparent and consistent about articulating their purpose, demonstrating to stakeholders that they deserve their trust.

'Enlightened self-interest'

Adrian Henriques, visiting professor of business and management at Middlesex University, said social impact includes asking: "How do the relationships between organisations and communities work and what are the mechanisms [for allowing it to happen]?" Understanding your role in the community is "critical to the business" stressed Jon Samuel, head of social performance at Anglo American, as are safety and environmental issues.

Peter White, Procter & Gamble's director of global sustainability, suFggested "enlightened self-interest" as one term for socially responsible businesses, stressing social impact can be achieved not only through practices but products. Referring to the water purifier, he added: "Improving lives happens at a lot of different levels; some of it is through our core product and the way we operate and some is around the social investment -programmes."

Stephen Howard, Business in the Community's chief executive, said ultimately social impact is about "how organisations engage and treat the planet, their environmental sustainability issues, how they manage their supply chains; how they engage with their employees creating inclusive, healthy, diverse places; also how they engage in their communities".

There was a sense, however, that the concept of a company improving lives simply through products is unsustainable, as the approach is based on a consumer-driven model of selling more items to more people. In addition, as Henriques said, "there are no companies in the world who don't say 'our aim is to have a positive impact on the world'".

Emma Williams, BT's senior engagement manager for corporate responsibility, agreed that corporate platitudes about improving the world through business produce the "false premise that makes us all feel happy and shiny and really doesn't move us towards where we need to be".

So how can companies turn social impact from theory into reality? David Bull, director of children's charity Unicef UK, drew attention to the difference between corporations "mitigating around the edges" through charity donations or marketing messages, and actions that bring about real change, such as using local supply chains.

Partnerships with non-governmental organisations (NGOs) are another vehicle for change, participants heard. For example, Unicef works with Procter & Gamble on disaster relief; and Anglo American, as well as funding social inclusion projects in communities where it works, enlists Care International's help to improve local development initiatives at its mining operations. A network of partners is vital in sustainable development; White stressed the importance of "finding the right players and using their innovation to make the whole thing work".

Unicef's Bull said that more companies should adhere to Unicef's new Children's Rights and Business Principles, which it developed with the UN Global Compact and Save the Children. The principles provide the first comprehensive guide to outline what companies can do to respect and support children's rights.

Bull also voiced concern that businesses creating social impact risk ignoring "those people at the bottom of the pile" who "are beneath those you can do microcredit with". Christine Svarer, head of private sector engagement at Care International UK, cited health insurance for those in extreme poverty in India as the kind of issue companies are reluctant to get involved in.

It is through local social enterprise that remote corporations can support communities, suggested Judith Pollock, deputy director of the Shell Foundation, Shell's independent sustainable development charity. "There's a level of disconnection [between corporations and local people] and it's about having a presence on the ground," she said. "Working with social enterprise enhances the idea that you need to be local, understand your market and look at them as consumers and provide a product and service they want or need."

Measuring social impact emerged as a key topic, with the bottom line being that company boards will be more inclined to invest in social impact projects if they can see a return on their investment. James Campbell, international director of corporate development at environment charity Earthwatch, said businesses will be more attracted to investing in social and environmental projects if NGOs "indicate … the type of returns you're likely to see both in terms of direct benefits to your business and also these other [social] impacts".

Guy Battle, a partner at Deloitte, agreed that investors and boards would be keener if they could easily see the value in socially responsible businesses. "The pension funds own the business … pension funds cannot put value on social wellbeing." Battle elaborated: "Ultimately the board says 'what do we do with this [agenda], how can we translate this to share price and pension funds?'"

Currently, some of the information that is presented to boards is "pretty meaningless," added Battle. "It's all about how minimum our impact is – that we reduced carbon dioxide by 10% and the board says 'so what … what has been the impact of that?'" Battle called for "radical transparency" enabling the usual social impact statement buried at the back of the annual report to be more like the annual management letter that goes to the board.

As for existing ways to measure impact, Michael Weatherhead, director of the New Economics Foundation (NEF) thinktank, spoke about NEF's Happy Planet Index, which measures wellbeing and environmental impact. The FTSE4Good Index Series, which measures the performance of companies that meet globally recognised corporate responsibility standards, is another useful tool, said Bull.

Another mechanism to measure social impact, added Anglo American's Samuel, is the mining company's Socio-Economic Assessment Toolbox. Designed to understand local needs, it helps firms develop management plans that respond to community aspirations. Samuel added: "We've made the toolbox available to the public so other companies and organisations can draw on our experience to help inform their own processes."

However, some warned that too much focus on measuring social impact would distract from action on the ground. "Measurement is useful, but I would not get hung up on it," said White. "We would like to show the number of children reached through a programme, but what does it mean? In some cases it's saved a life, in other cases children might have had a better teacher at school."

Henriques warned negative, as well as positive, social impact should be measured, adding "there are lots of interesting measures that translate economic impact into social, but it's important not to get carried away with that as not all social impact can be measured in a quantifiable way." For Henriques, the elephant in the room is government: "There needs to be some requirement for a level playing field for reporting, so you cannot ignore negative impact – that is the catalyst that would make people grow up."

Bull echoed the thoughts of other roundtable participants when he said combining ethics and business is difficult and complicated. "But we have to do it," he added. "[We have to] bring our minds down from that complexity and complication to the human beings whose lives we're trying to make better. I think if we can keep those people in our minds, we'll be able to do the right thing."